Retailers, distributors, and manufacturers use incentives of various descriptions to increase consumer purchases and foster consumer loyalty. One of the more common techniques is a coupon which entitles the consumer to a discount off of the price of the goods or services. A common type of incentive with manufacturers is a rebate through which the consumer can obtain some money back if they perform some additional step, such as mailing in a rebate form to the manufacturer with proof of purchase.
Manufacturers have traditionally used promotional vehicles such as newspaper, Free Standing Inserts (FSI), printed circulars, television, radio, billboards, other forms of mass media advertising, and direct mail marketing techniques to reach consumers. In 1996, manufacturers of consumer package goods (CPG) spent over $70 billion on promotional strategies designed to support their brands. A growing diversity of lifestyles and a profound expansion in the amount of information delivered to increasingly fragmented consumer segments have contributed to brand proliferation and a perceived decline in brand loyalty. At the same time, changes in the workforce, increases in the amount of advertising space available via television and shifts in demographics have made it harder for manufacturers to use traditionally mass distributed and untargeted promotional methods to reach potential customers. Consequently, conventional advertising and untargeted promotional strategies have become less efficient because such efforts are reaching fewer potential customers.
While CPG manufacturers have recognized the limitations of traditional promotional vehicles in reaching consumers efficiently, such marketing tools remain prevalent. Over 306 billion coupons were distributed in the United States in 1996. In comparison, only 237 billion coupons were distributed in 1986. While the number of coupons distributed has increased, the redemption rate has decreased during the same period from an average of 2.8% in 1986 to an average of 1.8% in 1996, thereby illustrating the limitation of this promotional tool. Even so, consumers have continued to recognize the value of coupons by redeeming them for an estimated $3.7 billion of savings in 1996.
As a result of the declining redemption rates for coupons, spending by CPG manufacturers on FSIs declined for the first time, from $7 billion in 1995 to $6 billion in 1996. In spite of the decreasing effectiveness of the more traditional promotional methods, such as coupons and mass media, and the decreasing expenditures by manufacturers on promotional methods and incentives, manufacturers have maintained the previous level of overall investment in brand promotions by spending more of their funds allocated to promotions on more targeted incentive vehicles. Promotional spending through direct marketing, including targeted free sample give-aways and other direct to consumer programs, increased 6% from 1990 to 1996.
In order to more efficiently invest in promotional items and to better communicate with potential customers, retailers have developed systems which identify individual households by their product purchasing histories. These systems allow retailers to track and analyze their customers according to sales and profit margins. Further, retailers have used these systems to reward the customers accordingly. CPG manufacturers have be willing to pay processing fees to system or network providers upon realizing the potential of electronically issued discounts. These processing fees have included fixed amounts and percentages of a discount amount. Typically, the processing fee has been paid after a redemption has been processed.
In order to further increase the effectiveness of incentive programs, retailers have begun to institute changes in their approach to communicating with their customers by investing in technology which improves efficiency and inventory management. Advances in point of sale technology, in addition to increases in checkout efficiency and developments in price and inventory control, have provided retailers with a platform to identify their customer base. Through use of this platform and these technological advancements, retailers have been able to develop programs that permit them to capture information about their customers' purchasing habits and to communicate with targeted segments of their customer base.
More recently retailers have shifted their focus to the 20% to 25% of their customer base that accounts for approximately 70% to 80% of their total sales. In an effort to foster relationships with these customers, retailers have used loyalty-building frequent shopper card programs in order to establish a direct means of communication with these most important customers.
One such system is taught in U.S. Pat. No. 5,056,019 issued to Schultz et al. where an automated purchase reward accounting system automatically tracks the purchasing behavior of consumers who are participants of a marketing program. Specifically, the marketing program disclosed in Schultz includes a booklet having incentive rewards for participating customers who make purchases of specific quantities of each participating manufacturer's product, as designated in the incentive book. The system tracks all purchases made by a consumer through the use of a consumer identification card having a computer-readable magnetic strip or, alternatively, a non-machine-readable consumer identification card. The consumer identification card is used to identify the purchases made by participating consumers. Each purchase made by a participating consumer is stored in a data collector at the retail store. The stored consumer data is used to compare the consumer's purchases with the incentives offered by the manufacturers in order to generate a reward certificate. Each participating customer receives a reward certificate which reflects all of the purchases made by the consumer of items corresponding with incentives offered by participating manufacturers. The reward certificate may either be in the form of a check or a redeemable coupon capable of redemption at a participating retailer.
While Schultz teaches an automated method for tracking consumer spending at a retail store, Schultz does not disclose a method for tracking consumer spending in multiple stores. In other words, the marketing program disclosed in Schultz is only available to track those consumer purchases made with a single company with whom the consumer had taken the proactive step to join the marketing program prior to making the purchase. Thus, the program disclosed in Schultz requires that a consumer obtain a separate consumer identification card for each different company. Additionally, the system does not provide the customer with cost savings at the point of purchase. Rather, the customer receives a reward certificate at a later point in time. Generally, such systems are not as favored by customers who desire simplicity, convenience and immediate benefits.
In an implementation of the system disclosed in Schultz, the redemption process was placed in the hands of a central management firm or third-party processing institution. The incentive program shifted the processing of the manufacturers' product discounts and redemption process from the retailer and manufacturers to a third-party institution. This third-party institution controlled and managed the discount redemption process, provided an electronic clearinghouse for discount redemptions, determined the consumers' behavioral purchasing habits, and issued additional discount rewards based on consumer purchasing habits of the retailers' customers.
A deficiency with this system was that retailers and manufacturers had to exchange their customer database information with the third-party processor institution. This system did not excel in part because it did not take into account the security and proprietary concerns in providing customer databases information to a third-party institution. Retailers did not, and do not, want manufacturers to have names and addresses or purchase histories of their customers. If customer data were going to be sold, as the case with the Schultz economic model, the retail grocers wanted the revenue. Additionally, because of the control the third party institution had on the data, the retailers and manufacturers were dependent on the third-party institution for controlling the product discount redemption, statistical tracking, and reporting of their customer activity. This shifting of the discount processing responsibility was viewed by many retailers and manufacturers as a fatal drawback.
Yet another deficiency with the implementation of Schultz was from the consumer's perspective. Many shoppers were reluctant to provide demographic data and collectively found that the reward was small and not immediate. Their attitude was that if the manufacturer was going to give them a discount, give it to them now rather than mailing them a rebate voucher later.
CPG manufacturers and retailers are not the only ones to employ some type of incentive program. For example, incentive programs have been used by financial institutions, specifically banks, in an effort to encourage increases in electronic transactions with customer accounts that are transaction intensive, thereby reducing the workload associated with these accounts. U.S. Pat. No. 5,734,838 to Robinson, et al., describes an incentive program which rewards a customer of a financial institution for making transactions with the institution through particular electronic means, such as an automated teller machine (ATM). A bank customer participates in the incentive program by maintaining an incentive program account balance and receives incentive points for each electronic transaction with the bank. For each electronic transaction, a customer receives incentive points with the value of the incentive points being based on the exact type of transaction made by the customer. These points can be used to purchase or receive free products, such as free airline tickets or free services. If a customer has insufficient incentive points to receive a free airline ticket, the balance owed is debited against the customers incentive account balance. Robinson states, in part, that objects of the invention are to encourage electronic type transactions as opposed to manual transactions and to encourage the transfer of assets from transaction static accounts to transaction intensive accounts, thereby requiring additional services from the administering institution. Thus, the system of Robinson is designed to generate more fees for the financial institution.
The incentive program taught in Robinson focuses on a bank rewarding its customers for performing transactions electronically rather than manually, thereby reducing the workload necessary to maintain the account while increasing the amount of fees generated as a result in an increase in the number of transactions made with an account. Further, the system rewards customers for making particular types of transactions. For instance, the bank could program the system to issue a greater amount of incentive points for transactions in which the bank charges customers a larger fee than for transactions which the bank charges a smaller fee, or no fee at all. Thus, Robinson discloses a system capable of rewarding a bank customer with incentives that are issued based upon the type of transaction made by that customer.
While retailers and manufacturers have sought to increase the efficiency of coupons, rebates and other incentives offered to consumers, systems available to date have failed to effectively target consumers and distribute these incentives. For instance, these systems rely on customers to proactively enter marketing programs for each retailer independently. Such a system lacks the convenience and the simplicity necessary to make the program desirable. Further, these systems do not target new customers, but merely foster currently existing relationships with previous customers. Still yet, other systems which seek new customers fail to make a determination as the likelihood of the person becoming a customer.